Equity

1 Months Ended

Feb. 05, 2021

Equity [Abstract]

EQUITY

EQUITY

Equity Units

In March 2021, the Company issued 10,430,500 Equity Units with a total notional value of $1,043 million. Each Equity Unit has a stated amount of $100 and was initially issued as a Corporate Unit, consisting of a forward stock purchase contract (“2024 Purchase Contracts”) and a 10% undivided beneficial ownership interest in one share of 0% Series A Cumulative Perpetual Convertible Preferred Stock, issued without par and with a liquidation preference of $1,000 per share (“Series A Preferred Stock”).

The Company concluded that the Equity Units should be accounted for as one unit of account based on the economic linkage between the 2024 Purchase Contracts and the Series A Preferred Stock, as well as the Company's assessment of the applicable accounting guidance relating to combining freestanding instruments. The Equity Units represent mandatorily convertible preferred stock. Accordingly, the shares associated with the combined instrument are reflected in diluted earnings per share using the if-converted method.

In conjunction with the issuance of the Equity Units, the Company received approximately $1 billion in proceeds, net of underwriting costs and commissions, before offering expenses. The proceeds for the issuance of 1,043,050 shares are attributed to the Series A Preferred Stock for $838 million and $205 million for the present value of the quarterly payments due to holders of the 2024 Purchase Contracts ("Contract Adjustment Payments"). The proceeds will be used for the development of the AES renewable businesses, U.S. utility businesses, LNG infrastructure, and for other developments determined by management.

The Series A Preferred Stock will initially not bear any dividends and the liquidation preference of the convertible preferred stock will not accrete. The Series A Preferred Stock has no maturity date and will remain outstanding unless converted by holders or redeemed by the Company. Holders of the shares of the convertible preferred stock will have limited voting rights.

The Series A Preferred Stock is pledged as collateral to support holders’ purchase obligations under the 2024 Purchase Contracts and can be remarketed. In connection with any successful remarketing, the Company may increase the dividend rate, increase the conversion rate, and modify the earliest redemption date for the convertible preferred stock. After any successful remarketing in connection with which the dividend rate on the convertible preferred stock is increased, the Company will pay cumulative dividends on the convertible preferred stock, if declared by the board of directors, quarterly in arrears from the applicable remarketing settlement date.

Holders of Corporate Units may create Treasury Units or Cash Settled Units from their Corporate Units as provided in the Purchase Contract Agreement by substituting Treasury securities or cash, respectively, for the Convertible Preferred Stock comprising a part of the Corporate Units.

The Company may not redeem the Series A Preferred Stock prior to March 22, 2024. At the election of the Company, on or after March 22, 2024, the Company may redeem for cash, all or any portion of the outstanding shares of the Series A Preferred Stock at a redemption price equal to 100% of the liquidation preference, plus any accumulated and unpaid dividends.

The 2024 Purchase Contracts obligate the holders to purchase, on February 15, 2024, for a price of $100 in cash, a maximum number of 57,364,621 shares of the Company’s common stock (subject to customary anti-dilution adjustments). The 2024 Purchase Contract holders may elect to settle their obligation early, in cash. The Series A Preferred Stock is pledged as collateral to guarantee the holders’ obligations to purchase common stock under the terms of the 2024 Purchase Contracts. The initial settlement rate determining the number of shares that each holder must purchase will not exceed the maximum settlement rate and is determined over a market value averaging period preceding February 15, 2024.

The initial maximum settlement rate of 3.864 was calculated using an initial reference price of $25.88, equal to the last reported sale price of the Company’s common stock on March 4, 2021. As of June 30, 2023, due to the customary anti-dilution provisions, the maximum settlement rate was 3.8739, equivalent to a reference price of $25.81. If the applicable market value of the Company’s common stock is less than or equal to the reference price, the settlement rate will be the maximum settlement rate; and if the applicable market value of common stock is greater than the reference price, the settlement rate will be a number of shares of the Company’s common stock equal to $100 divided by the applicable market value. Upon successful remarketing of the Series A Preferred Stock (“Remarketed Series A Preferred Stock”), the Company expects to receive additional cash proceeds of $1 billion and issue shares of Remarketed Series A Preferred Stock.

The Company pays Contract Adjustment Payments to the holders of the 2024 Purchase Contracts at a rate of 6.875% per annum, payable quarterly in arrears on February 15, May 15, August 15, and November 15, commencing on May 15, 2021. The $205 million present value of the Contract Adjustment Payments at inception reduced the Series A Preferred Stock. As each quarterly Contract Adjustment Payment is made, the related liability is reduced and the difference between the cash payment and the present value will accrete to interest expense, approximately $5 million over the three-year term. As of June 30, 2023, the present value of the Contract Adjustment Payments was $54 million.

The holders can settle the purchase contracts early, for cash, subject to certain exceptions and conditions in the prospectus supplement. Upon early settlement of any purchase contracts, the Company will deliver the number of shares of its common stock equal to 85% of the number of shares of common stock that would have otherwise been deliverable.

Equity Transactions with Noncontrolling Interests

AES Clean Energy Tax Equity Partnerships — The majority of solar projects under AES Clean Energy have been financed with tax equity structures, in which tax equity investors receive a portion of the economic attributes of the facilities, including tax attributes, that vary over the life of the projects.

During the second quarter of 2023 and 2022, AES Clean Energy Development, through multiple transactions, sold noncontrolling interests in project companies to tax equity partners, resulting in increases to NCI of $208 million and $98 million, respectively. AES Clean Energy Development is reported in the Renewables SBU reportable segment.

Chile Renovables — Under its renewable partnership agreement with Global Infrastructure Management, LLC (“GIP”), AES Andes will contribute a specified pipeline of renewable development projects to Chile Renovables as the projects reach commercial operations, and GIP may make additional contributions to maintain its 49% ownership interest. In January 2022, AES Andes completed the sale of Andes Solar 2a to Chile Renovables for $37 million, resulting in an increase to NCI of $28 million and an increase to additional paid-in capital of $9 million. In June 2022, the sale of Los Olmos was completed for $80 million, resulting in an increase to NCI of $68 million and an increase to additional paid-in capital of $12 million. As the Company maintained control after these transactions, Chile Renovables continues to be consolidated by the Company within the Energy Infrastructure SBU reportable segment.

Guaimbê Holding — In January 2022, the Ventus wind complex and AGV solar complex were incorporated by Guaimbê Holding. Guaimbê Holding issued preferred shares representing 3.5% ownership in the subsidiary for total proceeds of $63 million. The transaction decreased the Company’s indirect ownership interest to 35.8%. As the Company maintained control after these transactions, Guaimbê Holding continues to be consolidated by the Company within the Renewables SBU reportable segment.

AES Andes — In January 2022, Inversiones Cachagua SpA (“Cachagua”) completed a tender offer for the shares of AES Andes held by minority shareholders for $522 million, net of transaction costs. Upon completion, AES' indirect beneficial interest in AES Andes increased from 67.1% to 98.1%. Through multiple transactions following the tender offer during the first quarter of 2022, Cachagua acquired an additional 0.8% ownership in AES Andes for $13 million, further increasing AES’ indirect beneficial interest to 98.9%. The tender offer and these follow-on the transactions resulted in a $169 million decrease to Parent Company Stockholder’s Equity due to a decrease in additional paid-in capital of $93 million and the reclassification of accumulated other comprehensive losses from NCI to AOCL of $76 million. AES Andes is reported in the Energy Infrastructure SBU reportable segment.

Accumulated Other Comprehensive Loss — The following table summarizes the changes in AOCL by component, net of tax and NCI, for the six months ended June 30, 2023 (in millions):

	Foreign currency translation adjustment, net		Unrealized derivative gains (losses), net		Unfunded pension obligations, net		Total
Balance at the beginning of the period	$	(1,828)	$	211	$	(23)	$	(1,640)
Other comprehensive income before reclassifications	107		9		—		116
Amount reclassified to earnings	—		(43)		—		(43)
Other comprehensive income (loss)	107		(34)		—		73
Balance at the end of the period	$	(1,721)	$	177	$	(23)	$	(1,567)

Reclassifications out of AOCL are presented in the following table. Amounts for the periods indicated are in millions and those in parentheses indicate debits to the Condensed Consolidated Statements of Operations:

AOCL Components	Affected Line Item in the Condensed Consolidated Statements of Operations	Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022
Derivative gains (losses), net
	Non-regulated revenue	$	(8)	$	—	$	(8)	$	(1)
	Non-regulated cost of sales	—		(1)		(1)		(2)
	Interest expense	13		(10)		16		(33)
	Loss on disposal and sale of business interests	—		(16)		33		(16)
	Foreign currency transaction losses	(3)		—		(3)		—
	Income (loss) from continuing operations before taxes and equity in earnings of affiliates	2		(27)		37		(52)
	Income tax benefit (expense)	(2)		3		(11)		13
	Net equity in earnings (losses) of affiliates	7		4		22		1
	Net income (loss)	7		(20)		48		(38)
	Less: Net income attributable to noncontrolling interests and redeemable stock of subsidiaries	(4)		(3)		(5)		8
	Net income (loss) attributable to The AES Corporation	$	3	$	(23)	$	43	$	(30)
Amortization of defined benefit pension actuarial gain (loss), net
	Regulated cost of sales	$	—	$	(1)	$	—	$	(1)
	Other expense	—		1		—		—
	Net income (loss) attributable to The AES Corporation	$	—	$	—	$	—	$	(1)
Total reclassifications for the period, net of income tax and noncontrolling interests		$	3	$	(23)	$	43	$	(31)

Common Stock Dividends — The Parent Company paid dividends of $0.1659 per outstanding share to its common stockholders during the first and second quarters of 2023 for dividends declared in December 2022 and February 2023.

On July 14, 2023, the Board of Directors declared a quarterly common stock dividend of $0.1659 per share payable on August 15, 2023, to shareholders of record at the close of business on August 1, 2023.